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PwC: Private company confidence rises

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PwC: Private company confidence rises

Private company executives project 9% revenue growth over next 12 months.

Roughly two-thirds of private companies are optimistic about the U.S. economic outlook for the coming year, despite ongoing uncertainty about the world economy, according to a quarterly survey released today by professional services firm PwC. 

This optimism is translating into greater willingness to take on business risk in pursuit of growth (cited by 42% of respondents). Over one-third of these businesses also plan to invest in major new capital projects in the next 12 months.

“Private companies see a US economy that’s firmly back on track.”

Against this backdrop, private companies saw their profitability rise. Thirty percent of respondents said their gross margins rose in the third quarter, and just 13% saw a margin decrease, resulting in a net 17% reporting increases — the highest since 2006 (when it was net 18%).

“Private companies see a US economy that’s firmly back on track,” says Rich Stovsky, U.S. leader of PwC’s Private Company Services practice. “While they remain cautious in their global outlook, these companies continue to make calculated investments abroad and take a long-term view.” 

Focus on growth, market expansion

About half of respondents said their initiatives around product innovation and U.S. market expansion will help fuel their companies’ growth in 2015. As for economic growth generally, the vast majority (82%) of private companies said they think more capital spending by public and private businesses alike will have the biggest impact. 

When looking abroad, we see a steady increase in the number of international private companies planning expansion into new markets. A year ago, 15% of them intended to tap new markets, but that percentage has risen to 21% in the most recent quarter. International firms also are more likely to make capital investments than domestic-only firms, 41% vs 30%.

“It’s an encouraging economic indicator that private companies continue to pursue capital spending plans both at home and abroad,” says Ken Esch, a partner in PwC’s Private Company Services practice.

As for U.S. private companies selling in China, they project that their international sales will account for almost one-third of their overall revenue in the next 12 months, whereas international marketers that don’t sell in China expect sales abroad to comprise only 10 percent of their revenue.

Greater demand for specialized skills

The majority of survey respondents plan to hire in the coming months, but they project only a 1.6% net increase in their headcount during this period, signifying that private companies are being very selective in their hiring. Blue collar workers with specialized skills are of particular interest, with 27% of product companies now seeking such workers. Technology workers also remain in high demand, especially among service companies (35%).

But qualified workers remain hard to find — and increasingly so. A year ago, 27% of private companies said the talent gap was a growth barrier, compared with 34% in the latest quarter. Likewise, 23% see wage pressure as a problem, up from 13% at the beginning of this year. 

“Highly targeted hiring is a common tactic we’re seeing among many of our private-company clients,” says Esch. “It points to demographic shifts in the workforce and to core changes in U.S. manufacturing, where employees with specialized skills are increasingly replacing workers who typically manned pre-recession factory floors. This dynamic could eventually lead to an uptick in wage growth.” 

Additional Survey Findings

  • Companies anticipate a 9% revenue growth rate over the next 12 months, among the highest growth-rate projections in the past three years.
  • Though 58% of private companies say lack of demand is a barrier to growth, that’s markedly less than the 74% saying this a couple of years ago.
  • More companies plan strategic alliances than a year ago (21% vs 15%). 

For the full report, click here.

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